The dramatic promise made on July 26 by Mario Draghi, the president of the European Central Bank, that he would do “whatever it takes” to save the euro, calmed financial markets but left many traders and economists around Europe scratching their heads. His words were quickly echoed over the weekend by German Chancellor Angela Merkel and French President François Hollande in a joint communiqué, as well as by Italy’s Prime Minister Mario Monti. But the big question they and Draghi aren’t answering, at least in public, is what more the ECB and European governments could actually do – other than make grandiose statements – to fight off the waves of financial speculative attacks against Spain, Italy and other countries that threaten to destroy the euro.

This week, however, the contours of one possible scenario have been coming into focus. It would involve granting a banking license to the European Stability Mechanism, the new bailout instrument that euro zone governments have agreed to set up and equip with 700 billion euros.

The ESM, which would replace a smaller temporary fund set up in 2010, is in the process of being ratified by the 17 European Union nations that use the euro, and is expected to start functioning later in the year, assuming it passes that hurdle. Of its total capital, 80 billion euros would be paid-in by governments, and the remainder would take the form of guarantees.

It’s called a “mechanism” but in fact the ESM is being set up as an international institution based in Luxembourg. In theory, granting it a banking license would massively increase its firepower to help states such Spain or Italy that need to refinance their debt and fight off the financial markets perhaps once and for all.

This is how it would work: The ESM, like any bank, would be able to leverage its own capital by borrowing from the European Central Bank. Even if it leveraged up only moderately, say by a factor of 10 to 1, that would give it 7 trillion euros, more than enough to cover the total debt of Spain, Italy, Greece and others. At the very least, a banking license would enable the ESM to borrow from the European Central Bank, making it a highly liquid and formidable market force.

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The ESM is being set up already equipped, at least in theory, with the ability to buy sovereign debt of euro nations both directly from the countries issuing it and, “in exceptional circumstances,” on the bond market. The banking license would just make that possibility a lot easier.

For the time being, the banking license option is just that — an option. But government sources in France and Germany say it’s an idea that’s being floated by finance officials in France, Spain and Italy as a real possibility. The prospect that it might become a reality was splashed by the German daily Süddeutsche Zeitung on Tuesday, July 31, prompting a furious reaction in Germany. A German finance ministry spokesman said that he saw “no need” for such a move. But Luxembourg’s foreign minister Jean Asselborn told a German TV station that “it’s not a question of getting money without limits or conditions. We need an instrument that is effective against speculation.” The idea was also floated in Le Monde over the weekend.

This talk of a banking license comes amid a big flurry of diplomacy around the euro, ahead of a European Central Bank council meeting on Thursday Aug. 2. It’s unlikely that a banking license for the ESM will be on the agenda of that meeting, but it’s evidently an idea that council members are already mooting. Ewald Nowotny, the governor of Austria’s central bank and an ECB council member, said in an interview with Bloomberg that there are some arguments in favor of granting a banking license and that, “I would see this as an ongoing discussion.”

Draghi is playing his cards very close to his vest, even as he embarks on some heavy-duty diplomacy ahead of the ECB meeting. He’s meeting U.S. Treasury Secretary Tim Geithner, who is in Europe to urge government leaders to take decisive action to shore up the euro, and will hold a particularly important one-on-one with Jens Weidmann, who heads the Bundesbank, the German central bank. Weidmann has emerged as a key skeptic of ECB intervention in favor of troubled euro zone countries. He has repeated, loudly and clearly in the German press, that he doesn’t believe throwing more money at countries that are already deeply in debt is either a useful or a sustainable solution.

In fact, Weidmann’s favorite phrase appears to be the Latin term, “ultima ratio” – which means, “as a last resort.” Germany effectively killed off an earlier proposal supported by the French, Italian and Spanish governments to mutualize national debt through the issuance of Eurobonds. Merkel in June declared she would never accept such bonds “as long as I live.” While the German parliament has ratified the European Stability Mechanism, it can’t be put into effect until the German Constitutional Court gives its green light. The court has sought to put clearer limits around the responsibility and duty of Germany to assist other eurozone nations, and is expected to issue its ruling in September.

Another nation that has emerged as an opponent of pooled efforts to bail out the troubled euro zone countries is Finland. It is so unwilling to see its taxpayers’ money used to bailout out profligate southern Europeans that it has cut side deals with both Greece and Spain, under which both these nations provide the Finns with collateral in exchange for Finnish agreement for European bailout packages. Italy’s Monti will be visiting Helsinki this week, as he embarks on several days of his own hectic diplomacy this week that will also take him to Spain.

Peter Gumbel writes about European business and finance from Paris, where he has lived since 2002. He was worked as a staff writer for The Wall Street Journal, TIME and Fortune. The London-based Work Foundation named him "Journalist of the Year" in 2005.

Gumbel's latest book is France's Got Talent: the woeful consequences of French elitism. A digital version is available in English.